Using a credit card is a very convenient way to buy almost anything under the sun, from a pair of shoes to a holiday vacation for the entire family. But bear in mind that a credit card doesn’t work like a debit card. When you’re using a credit card, it means you are borrowing money. But if it is used unwisely, you can incur a bad debt. So to help you determine what type of credit card suits you best, check out the common types of credit cards:
1. Zero/Low Interest Rate Credit Cards: This is best for individuals who are willing to and capable of paying off card debt quickly. Most providers of credit cards offer low interest rates on balance transfers from other credit cards. A lower rate will save you a good amount of money on interest costs. But the lower rate often will last only for 6 to 9 months, then increases, often around 14-16 per cent if you make a single late payment. If you transfer a big balance but do not pay it off within the grace period, you may have a higher interest rate compared to what you had at the beginning.
2. Rewards Credit Cards: This type of credit card is recommended for consumers who make most of their purchases using a card and pay off their balance on a monthly basis. Credit card issuers offer airline miles, cash back, and other points when you buy certain items based on the amount of money you spend. Some reward credit card, for example, offer up to 5 per cent cash back on particular purchases without annual fee. Some credit cards have high annual fees and interest rates but eliminating the reward benefits. Other credit cards have unfavourable and complicated redemption rules. So it is essential to read each offer very carefully.
3. Secured Card: This type of card is best for people who in the past have gotten into credit card trouble. Using this type of card wisely will help fix or establish a poor credit rating. But as you apply you’ll be asked to give a deposit which often ranges from $200 to $250. Many of these cards have high annual charges and rates so you should read the fine print carefully.
4. Student Credit Card: This is ideal for college students who know how to manage money wisely. Students could qualify for this type of card even if they have not established a credit rating yet. Many issuers of this type of card offer more benefits such as discount on bookstores and/or cash back. But some credit cards have higher rates. It’s quite easy for college students who are not very experienced at handling finances to quickly incur unmanageable debts.
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